Wyatt Emmerich: Is the tide turning in Kemper?

June 6, 2013 9:52:31 AM

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As predicted, the train wreck called the Kemper lignite plant is just getting started. It will be as bad as the beef plant but 100 times bigger.

The top Mississippi Power Company (MPC) executives have lost their jobs. Massive cost overruns have been hidden. The startup date is up in the air. Several experts are convinced the $4.5 billion experiment won't come close to meeting its operating projections.

Worst of all, Mississippi ratepayers are just now getting the tab with a 23 percent rate increase. Look for more increases to come if our political leaders don't come to their senses.

(The MPC press release claims only a 15 percent rate increase, but that number employs some creative statistical manipulation.)

Make no mistake, Kemper will be built. It is too late to stop it now. But who ultimately pays the bill is far from decided. If Mississippi Public Service Commission (PSC) commissioners Leonard Bentz or Lynn Posey change their minds, MPC stockholders could be forced to pick up much of the multi-billion-dollar tab. This could and should happen.

Bentz and Posey have a good reason to change their support. They were deliberately misled about cost overruns while MPC did an end-run around the PSC and got an extra billion from the state Legislature. This effectively gutted the PSC's $2.88 billion cost limit, raising ratepayers' exposure to $3.88 billion.

If Mississippi ratepayers have to pay for most of the $4.5 billion plant, it will set back economic development in our state for decades to come. The failure of this risky venture should be borne by the MPC stockholders, not the Mississippi ratepayers.

One-third of ratepayers affected

This is no small deal, when factoring in the rural cooperatives that will buy electricity from MPC, Kemper will have a direct effect on the electricity bills of nearly one-third of Mississippi's citizens.

This summer the PSC will hold "prudency" hearings on Kemper. These hearings give the PSC one last chance to free Mississippi ratepayers from this 40-year burden. Including interest, the cost will be $12 billion over the life of the plant - an inconceivable burden for a small, rural state such as Mississippi.

Speaking to the Stennis-Capitol Press Forum this week PSC Commissioner Brandon Presley, who has fought Kemper from day one, said, "Not one dollar of the Kemper plant has been deemed prudent."

It's hard to believe that Posey and Bentz can hold the state hostage to a $4.5 billion boondoggle. But it's true. If either Posey or Bentz vote against Kemper in the prudency hearings, they could save Mississippi households billions of dollars.

Commissioner Presley said Kemper will eventually mean 40 percent electricity cost increases for a third of Mississippi. "This is the greatest transfer of wealth from customers to a monopoly in the history of the state."

If Posey and Bentz go down with the Kemper ship, the Mississippi Supreme Court could still save the ratepayers. The court overturned the construction certificate in a 9-0 decision. The court did not find enough evidence to justify Kemper.

Despite the ongoing litigation, MPC proceeded with construction before the appeal of the certificate had been exhausted. Legally, this gives ratepayers a second chance to be saved from this disaster.

The tide is turning. Last month, MPC agreed to a $540 million write-off related to Kemper. This is the first time MPC did not try to force its bad decision on ratepayers.

Rare praise

You can thank the Sierra Club for that - director Louie Miller and attorney Robert Wiygul. In a rare bit of praise for the Sierra Club, the Wall Street Journal ran an editorial last week praising the Mississippi chapter for protecting Mississippians from the exorbitant cost of Kemper.

You can also thank the Bigger Pie Forum think tank chaired by Kelley Williams, former CEO for First Mississippi/Chemfirst. Unlike all the Republican politicians who slavishly jumped into this massive government planning project, Williams actually ran a big chemical company and knows what he's talking about. He thinks Kemper is a complete disaster and will never work as advertised.

Kelley was former Gov. Haley Barbour's energy policy adviser until a falling out over the Kemper project.

Bigger Pie board members Charles Grayson and Ashby Foote have done hours and hours of unpaid research and writing on Kemper. Greenville Republican stalwart Clarke Reed is working hard to oppose Kemper and prevent it from being a black eye for the newly reigning Republican Party.

There are several other key Kemper dissidents who do not wish to be named for fear of economic or political retribution.

Collectively, these volunteer consumer advocates have saved their fellow Mississippians the $540 million that MPC agreed to eat. And that's just the start. When you see them, a thank you is in order.

Just a few months earlier, MPC coaxed the state Legislature to fund a billion dollars in cost overruns through a special state bond. The payments on these bonds will show up on the ratepayers' bills.

Philip Gunn, Tate Reeves and Phil Bryant took ownership of Kemper when they allowed that awful piece of legislation to quietly pass. It seems clear that MPC intentionally withheld information on cost overruns in order to get their billion. It worked and made our state leaders look quite foolish.

Southern Company, MPC's huge parent, cut off a few heads as a form of apology. Now it's back to the business of duping poor old Mississippi so Southern Company shareholders can get a better return. Southern has perfected this to an art form.

Haley Barbour was the prime original Kemper advocate. The whole party followed suit. Kemper is a Republican gig and the party will pay a high price for its support.

Skyrocketing costs

Kemper's price tag of $4.5 billion is about 18 times what a good used natural gas facility would have cost.

The first estimate of Kemper's cost was $1.5 billion. The cost so far is three times that and growing. Given their colossal error on capital expenditures, why does anyone think their operating estimates will hold up?

MPC officials claim the operating costs of Kemper will be offset by selling chemical byproducts. Unfortunately, no plant like Kemper has ever been built so nobody really knows what to expect. Many experts called the Kemper operating projections a pure fairy tale.

Meanwhile abundant natural gas from fracking is available at very affordable prices.

To put this in perspective, the entire discretionary budget of the state of Mississippi is about five billion. Kemper could easily end up costing an extra $300 million a year - almost six percent of the entire Mississippi general fund budget.

There is one glaring problem with the upcoming PSC prudency hearings. They are premature. Kemper won't even crank up for another couple of years. After that, it will take another several years of experimenting and re-engineering before its failure becomes clear.

It is possible - if not likely - that Kemper's operating costs will exceed that of a natural gas plant. If that happens, then Kemper will have wasted the difference between its $4.5 billion price tab and the cost of a used natural gas plant - about $4.25 billion. Put another way, that's $25,000 per household down the drain.

Bentz and Posey need to support a PSC motion requiring Kemper to meet its rosy operating projections before the plant is deemed prudent. This must be the primary result of the prudency hearings this summer.

In addition, the Mississippi Supreme Court needs to stay in the fight. Courts don't like to overturn agency decisions. That's understandable. But the magnitude of Kemper - both in terms of its negative impact on economic progress and the egregious failure of the PSC to protect consumers - makes this case different.

Last month the Southern Company admitted the Kemper cost overruns amounted to a "material weakness in internal control over financial reporting . . ." and took a $540 million hit.

The tide is turning. This battle is far from over but there is now cause for optimism.